Lock In Letter Guidance Updated by IRS

The new Form W-4 just keeps on providing more and more info for us payroll professionals.  We now turn to handling lock-in letters.  The IRS has updated its FAQs to explain how to handle the lock-in letters using the new 2020 Form W-4.  As a quick review on the background of lock-in letters.

If the IRS determines that an employee does not have enough withholding, they will notify the employer to increase the amount of withholding tax by issuing a “lock-in” letter that specifies the withholding arrangement permitted for the employee. The employer will also receive a copy for the employee that identifies the withholding arrangement permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate withholding arrangement. If the employee still works for for the employer, the employer must furnish the employee copy to the employee. If the employee NO LONGER WORKS for the employer, NO ACTION IS REQUIRED. However, if the employee should return to work within twelve (12) months, the employer should begin withholding income tax from the employee’s wages based on the withholding arrangement stated in this letter. The employee will be given a period of time before the lock-in rate is effective to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee must send the Form W-4 and statement directly to the IRS office designated on the lock-in letter. The employer must withhold tax in accordance with the lock-in letter as of the date specified in the lock-in letter, unless otherwise notified by the IRS. The employer will be required to take this action no sooner than 60 calendar days after the date of the lock-in letter. Once a lock-in rate is effective, an employer cannot decrease withholding unless approved by the IRS.

The new FAQs include:

  • how to handle revised W-4s after the lock-in letter is received
  • How to handle a modification letter
  • Handling employee self service portals and lock-in letter

The site still includes info on how to handle lock-in letters using the 2019 and prior forms.

 

IRS Issues Proposed Regs for Withholding

The U.S. Department of the Treasury and the Internal Revenue Service have issued proposed regulations updating the federal income tax withholding rules to reflect changes made by the Tax Cuts and Jobs Act (TCJA) and other legislation.

In general, the proposed regulations, available now in the Federal Register, are designed to accommodate the redesigned Form W-4, Employee’s Withholding Certificate, to be used starting in 2020, and the related tables and computational procedures in Publication 15-T, Federal Income Tax Withholding Methods. The proposed regulations and related guidance do not require employees to furnish a new Form W-4 solely because of the redesign of the Form W-4.

Employees who have a Form W-4 on file with their employer from years prior to 2020 generally will continue to have their withholding determined based on that form.

To assist with computation of income tax withholding, the redesigned Form W-4 no longer uses an employee’s marital status and withholding allowances, which were tied to the value of the personal exemption. Due to TCJA changes, employees can no longer claim personal exemptions. Instead, income tax withholding using the redesigned Form W-4 will generally be based on the employee’s expected filing status and standard deduction for the year.

The Form W-4 is also redesigned to make it easier for employees with more than one job at the same time or married employees who file jointly with their working spouses to withhold the proper amount of tax.

In addition, employees can choose to have itemized deductions, the child tax credit, and other tax benefits reflected in their withholding for the year. As in the past, employees can choose to have an employer withhold a flat-dollar extra amount each pay period to cover, for example, income they receive from other sources that is not subject to withholding. Under the proposed regulations, employees now also have the option to request that employers withhold additional tax by reporting income from other sources not subject to withholding on the Form W-4.

The proposed regulations permit employees to use the new IRS Tax Withholding Estimator (discussed in our previous blog)  to help them accurately fill out Form W-4. As in the past, taxpayers may use the worksheets in the instructions to Form W-4 and in Publication 505, Tax Withholding and Estimated Tax, to assist them in filling out this form correctly.

The proposed regulations also address a variety of other income tax withholding issues. For example, the proposed regulations provide flexibility in how employees who fail to furnish Forms W-4 should be treated. Starting in 2020, employers must treat new employees who fail to furnish a properly completed Form W-4 as single and withhold using the standard deduction and no other adjustments. Before 2020, employers in this situation were required to withhold as if the employee was single and claiming zero allowances.

In addition, the proposed regulations provide rules on when employees must furnish a new Form W-4 for changed circumstances, update the regulations for the lock-in letter program, and eliminate the combined income tax and FICA (Social Security and Medicare) tax withholding tables.

Treasury and IRS welcome public comment on these proposed regulations. See the proposed regulations for details. Updates on TCJA implementation can be found on the Tax Reform page of IRS.gov.

IRS Tax Estimator Gets Latest Update

The Internal Revenue Service has launched a new and improved Tax Withholding Estimator, designed to help workers target the refund they want by having the right amount of federal income tax taken out of their pay. The Tax Withholding Estimator, now available on IRS.gov, incorporates the changes from the redesigned Form W-4, Employee’s Withholding Certificate, that employees can fill out and give to their employers this year. The IRS urges everyone to see if they need to adjust their withholding by using the Tax Withholding Estimator to perform a Paycheck Checkup. If an adjustment is needed, the Tax Withholding Estimator gives specific recommendations on how to fill out their employer’s online Form W-4 or provides the PDF form with key parts filled out.

To help workers more effectively adjust their withholding, the improved Tax Withholding Estimator features a customized refund slider that allows users to choose the refund amount they prefer from a range of different refund amounts. The exact refund range shown is customized based on the tax information entered by that user. Based on the refund amount selected, the Tax Withholding Estimator will give the worker specific recommendations on how to fill out their W-4. This new feature allows users who seek either larger refunds at the end of the year or more money on their paychecks throughout the year to have just the right amount withheld to meet their preference.

The new Tax Withholding Estimator also features several other enhancements, including one allowing anyone who expects to receive a bonus to indicate whether tax will be withheld. In addition, improvements added last summer continue to be available, including mobile-friendly design, handling of pension income, Social Security benefits and self-employment tax.

Starting in 2020, income tax withholding is no longer based on an employee’s marital status and withholding allowances, tied to the value of the personal exemption. Instead, income tax withholding is generally based on the worker’s expected filing status and standard deduction for the year. In addition, workers can choose to have itemized deductions, the Child Tax Credit and other tax benefits reflected in their withholding for the year. It is important for people with more than one job at a time (including families in which both spouses work) to adjust their withholding to avoid having too little withheld. Using the Tax Withholding Estimator is the most accurate way to do this.

As in the past, employees can also choose to have an employer withhold an additional flat-dollar amount each pay period to cover, for example, income they receive from the gig economy, self-employment, or other sources that is not subject to withholding. For more information about the updated Tax Withholding Estimator and the redesigned 2020 Form W-4, visit IRS.gov.

Keep up on all the latest payroll news for 2020.  Subscribe to Payroll 24/7 today.  Only $149 per year to keep totally informed.  What a Deal!!

 

Our new payroll lecture series for 2020 is here.  Our first lecture is on IRS forms for 2020, including Forms 941, W-2 and W-4.  It will be held on Friday, February 28, 2020 from 10am Pacific to Noon Pacific.  Cost is only $149 for this 2-hour lecture, which has been submitted to the APA for 2 RCHs.  My blog subscribers receive a 10% discount if you register before February 21st. Use coupon code VVJECAXH at checkout to receive your discount. 

Ring in the New Year with The Payroll Advisor

Each year payroll professionals attend year end webinars or live events to get the latest news on how to close out the old year and begin the new one.  This year I am offering something a little different than “year end”.   My next lecture will focus on just the new year.  So I am calling it “Ringing in the New Year–2020”.  In this 90-minute lecture I will cover all the latest for 2020.  This includes:

  • Completely new and revamped 2020 Form W-4
  • New DOL exempt rules
  • Minimum wage increases on the state level
  • New and upcoming sick leave and/or paid leave programs going into effect
  • 2020 Form W-2
  • 2020 Form 941
  • 2020 Form 1099-NEC

This different approach allows me to concentrate on the upcoming year and saves your time by not having to review information you may already know or will receive from other sources.

Our price for this information packed lecture is only $149. Click here to register.  Subscribers to Payroll 24/7 will receive a 20% discount if they register by Tuesday, December 3, 2019.  Not a subscriber to Payroll 24/7?  Try us out with your registration. If you register prior to Tuesday, December 3, 2019 you will receive a free 60-day subscription to this valuable payroll news service.

This lecture has been submitted to APA for 1.5 RCH credits.

DOL Proposing Rules for Tip Credit Provisions

The U.S. Department of Labor (DOL) has announced a proposed rule for tip provisions of the Fair Labor Standards Act (FLSA).  The proposed rule would implement provisions of the Conso

Still life of a full tip jar

lidated Appropriations Act of 2018 (CAA). The proposal would also codify existing Wage and Hour Division (WHD) guidance into a rule.

According to the announcement: The CAA prohibits employers from keeping employees’ tips.  During the development of those provisions, the Department provided technical assistance to Members of Congress. DOL’s proposed rule would allow employers who do not take a tip credit to establish a tip pool to be shared between workers who receive tips and are paid the full minimum wage and employees that do not traditionally receive tips, such as dishwashers and cooks.

The proposed rule would not impact regulations providing that employers who take a tip credit may only have a tip pool among traditionally tipped employees. An employer may take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (currently $2.13 per hour) and the federal minimum wage. Establishments utilizing a tip credit may only have a tip pool among traditionally tipped employees.

Additionally, the proposed rule reflects the Department’s guidance that an employer may take a tip credit for any amount of time an employee in a tipped occupation performs related non-tipped duties with tipped duties. For the employer to use the tip credit, the employee must perform non-tipped duties contemporaneous with, or within a reasonable time immediately before or after, performing the tipped duties. The proposed regulation also addresses which non-tipped duties are related to a tip-producing occupation.

In this notice of Proposed Rulemaking (NPRM), the Department Proposes to:

  • Explicitly prohibit employers, managers, and supervisors from keeping tips received by employees;
  • Remove regulatory language imposing restrictions on an employer’s use of tips when the employer does not take a tip credit. This would allow employers that do not take an FLSA tip credit to include a broader group of workers, such as cooks or dishwashers, in a mandatory tip pool.
  • Incorporate in the regulations, as provided under the CAA, new civil money penalties, currently not to exceed $1,100, that may be imposed when employers unlawfully keep tips.
  • Amend the regulations to reflect recent guidance explaining that an employer may take a tip credit for any amount of time that an employee in a tipped occupation performs related non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties.
  • Withdraw the Department’s NPRM, published on December 5, 2017, that proposed changes to tip regulations as that NPRM was superseded by the CAA.

After publication this NPRM will be available for review and public comment for 60 days. The Department encourages interested parties to submit comments on the proposed rule. The NPRM, along with the procedures for submitting comments, can be found at the WHD’s Proposed Rule website.

Opinion Letters Issued

Despite all the “turmoil” that is going on over at the U.S. Department of Labor (DOL), the work is still continuing. The DOL has issued three new opinion letters that address compliance issues related to the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). An opinion letter is an official, written opinion by the Department’s Wage and Hour Division on how a particular law applies in specific circumstances presented by the individual or entity that requested the letter.

The latest opinion letters are:

  • FMLA2019-2-A: Addressing whether attending a Committee on Special Education meeting to discuss a child’s Individualized Education Program qualifies as FMLA leave;
  • FLSA2019-11: Addressing the application of the section 7(k) overtime exemption to public agency employees engaged in both fire protection and law enforcement activities; and
  • FLSA2019-12: Addressing the employment status of volunteer reserve deputies who perform paid extra duty work for third parties.

Be sure to keep up with the latest rule changes and opinion letters from the DOL with a subscription to Payroll 24/7.  Only $149 per year for all the latest payroll news right to your inbox.

Our First Payroll Lecture is Here

I am offering my first payroll lecture of the year next week on June 18th.  The subject will be travel pay. The lecture is two hours from 10:00 am to Noon Pacific time.  It is approved by the APA for 2 RCHs.  The nominal charge for the webinar is $99.  You can register under our Shop on our website. 

Learning Objectives:

  • Understand the FLSA requirements for paying an employee who travels
  • Comprehend the best practices for tracking and paying for travel pay
  • Understand the IRS requirements for taxing travel pay reimbursements including per diems and accountable plans.

EFT, ACH and EDI are Different and It Matters

In payroll we tend to use the terms EFT, ACH and EDI interchangeably.  But in actual practice they are quite different.  To help explain these important differences the National Automated Clearing House Association or NACHA has provided some guidance on their April 29, 2019 blog, written by Rober Unger.   It is helpful to payroll professionals to understand these terms and use them correctly.  I found this blog extremely helpful and I hope you do to.

The Social Security Wage Base Projections Are Here!

Every year we, in payroll, wait in anticipation for the social security (OASDI) wage base to be announced. This basically heralds in the year end/year beginning processing time.  But for some, maybe those responsible for employment tax budgets or financial reports, the wage bases for future years is a handy thing to have all at once and not just wait for it at the end of the year. For this reason, the Social Security Administration (SSA) publishes their estimates for the social security wage base each year.  The years 2020-2028 are included in this year’s 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds.   The SSA provides three estimates, high, intermediate and low. For example, for 2019, the actual wage base is $132,900. However, the 2018 report projected $132,300 to $136,800.  The following chart lists the projections estimated by SSA (on page 115 of the report) for calendar years 2020 through 2028:

We still have to wait until October or so for the actual 2020 wage base, but the estimates can be useful in predicting future labor costs.

 

Reminder: Keep up with the payroll news by subscribing to Vicki’s e-news alerts, Payroll 24/7.  The latest payroll news when you need it, right to your inbox.

A Fresh Approach to Payroll Training is Coming Your Way!

I am proud to announce that I am once again offering training webinars but this time with a fresh approach.  We are an approved provider by the American Payroll Association (APA).  This means that my training can earn you RCHs as well as enhance your education.  But my training will be different than the usual fare that you get for webinars, even the ones I conduct for other vendors.  Instead of just listening, my webinars or “lectures” as I call them, will be interactive. Let me explain how this works.  I am an adjunct faculty member at Brandman University and am responsible for their Practical Payroll Online program. I do all of the materials for the program as well as teach the courses.  Each year I record various topical lectures for my students to use in each of the five courses.  These “lectures” are provided live to the students at a certain date and time and are recorded using the Zoom software Brandman provides. Students may attend the live event or may choose to view the recorded version, it is up to them. Because these are related to the course work, they include more interaction than standard or traditional webinars. For example, you can ask questions at any time during the lecture just as you would in a live classroom setting. You may have forms to complete (such as the lecture on the Form 941 or Form W-2) or you may have calculations to perform for the child support lecture. Each lecture is a full two hours, so more time to devote to the information and to related questions.

Students enrolled in the Brandman program are permitted to attend the lectures for free and do not receive RCHs.  However, I have had numerous requests to provide payroll training that gives RCHs so this is how I have decided to offer that training to my non-students.  I will post the latest lecture on my website.  All lectures are during normal business hours and usually held on Tuesday, Wednesday or Thursday.  I cannot offer these lectures for free.  There is a fee for APA certification, but I want to keep the costs within everyone’s budgets.  The introductory cost will be $99 per lecture per attendee.  That is two RCHs for less than $100 and no sales pitches or follow-ups about buying anything.  You may sign up with a personal email or with your business email, whichever you prefer.  And you don’t need to worry about getting your questions answered.  Since this is still a “class-room” style setting I am limited to only 20 additional attendees per lecture. So you won’t be lost in the multitude of other attendees vying for attention.

I will be offering our first lectures in May on Travel Pay, Child Support, Multistate Taxation, and Wage and Hour Law.  June’s lectures will include California Wage and Hour Law, Tax Levies and Creditor Garnishments, Payroll Procedures, and Abandoned Wages.  As each lecture is approved by the APA it will be posted to our website and open for registration. You simply pay online for the lecture and you will receive all the info for how to log into the classroom on the day of the lecture within two business days of registering.  After the lecture, your Certificate of Attendance will be issued once we verify you have completed all the required time in the classroom, the required APA polls, and the survey,  usually within 2 weeks after the lecture.

Unfortunately, although the lectures are recorded for use on the Brandman website, I cannot offer the lecture as an on-demand product or after the fact electronic version.  Only live attendees will be accepted. But you always have the option of signing up for the Brandman course which features the lecture and if you complete the tests and quizzes can receive up to 8 RCHs for $200 per course for APA members. One more way to earn RCHs at a low price.

We are very excited to be offering this learning opportunity to our social media network.  We hope you find our lectures informative and useful. Further announcements for exact dates and topics will be coming.